There's something about Larry Summers

One main piece of evidence for this argument is a letter signed by about half the Senate Democratic caucus sent to the president making the case for Yellen as Fed chair.

The counterpoint from those who support Summers is that the White House believes nearly all Senate Democrats will eventually back whomever the president picks and that Republican opposition to Yellen and Summers would be about equal and not enough to derail either one. Sen. Sherrod Brown (D-Ohio) said this week that he signed the letter to support Yellen and not to oppose Summers, something insiders believed was a telling walk-back.

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“I think it is absolutely clear that Larry Summers could be confirmed by the United States Senate,” Messina said. “And all of the tough nominations [in the first term] were under my purview, so I think have a little credibility on that front.”

Messina said the president has great trust in Summers. “Larry Summers walked into the administration as the economy went into its worst slide since the Great Depression,” Messina said. “And his advice and actions were absolutely crucial to the president’s decision-making, and those actions helped lead us out of a historical recession.”

Argument 3: Summers’s views on monetary policy are either unknown or wrong

The main case against Summers from the liberal policy wonk community is that we don’t know enough about what he would do at the Fed. And what we do know, these people say, suggests Summers would be too timid and centrist when the economy really needs a bold liberal who would brandish all of the Fed’s weapons — and maybe find some new ones — to drive down the stubborn jobless rate and encourage faster growth. These people note that Summers has occasionally been critical of the tools the Fed is using now and worried that they could create asset bubbles.

And they say that Yellen’s views are much more well-known and that she would be more aggressive in executing on the second half of the Fed’s “dual mandate,” which is to promote full employment.

The Fed will have its target interest rate near zero for quite some time, meaning it will have to use other tools to help the economy, said Matthew O’Brien, a prominent liberal blogger and associate editor at The Atlantic magazine. “And while I agree with Summers that fiscal policy is preferable to monetary stimulus, that’s not going to happen anytime soon.” On unconventional tools, O’Brien said, Summers has been “noticeably silent.”

People close to Summers rebut this argument in two ways.

First, they say that the one person who knows exactly where Summers stands on monetary policy is the only one who really matters right now: Obama.

They also note that Summers has actually written extensively on monetary policy. One person noted that if you use Google Scholar and type in “Lawrence Summers” and “monetary policy” you get more than 7,000 hits, including many long academic papers on the subject.

Summers has indeed questioned the overall efficacy of “quantitative easing” — widely known as “QE,” which means buying up bonds to keep the rate low across the economy. According to the Financial Times, he told a conference in April: “QE in my view is less efficacious for the real economy than most people suppose.” Summers supporters note that Bernanke himself has questioned how effective it is. And there is no real evidence that Yellen, though beloved by liberals, is some kind of radical who would dramatically change the central bank’s current direction.

Another person who has questioned the risks of QE: Barack Obama. The president told The New York Times in an interview last week: “I want a Fed chairman that can step back and look at that objectively and say, ‘Let’s make sure that we’re growing the economy, but let’s also keep an eye on inflation, and if it starts heating up, if the markets start frothing up, let’s make sure that we’re not creating new bubbles.’”

Argument 4: Summers helped wreck the economy with deregulation.

The final common complaint against Summers is that he was a supporter of repealing the Glass-Steagall law in the 1990s, bringing down the wall between investment and consumer banking. Critics say this helped lead to the financial crisis in 2008 and 2009.

“He was part of the deregulatory problem that led to the crashing of our economy. His fingerprints are all over the repeal of Glass-Steagall,” said O’Neill of NOW.

Summers’s defenders agree that he supported the bill that brought down Glass-Steagall. But they say the worst of the financial crisis centered mainly on pure investment banks such as Bear Stearns and Lehman Brothers and pure lenders like Countrywide Financial and Washington Mutual, not diversified megabanks.

Citigroup is one big exception to this rebuttal. But Summers defenders say that even many strong proponents of regulatory reform acknowledge that Glass-Steagall alone would not have prevented the financial crisis.

And supporters say Summers was a strong advocate at Treasury in the 1990s for reforming Fannie Mae and Freddie Mac and addressing their potential to create systemic risk before anyone else was talking about it. He also worked on preventing predatory lending and unsuccessfully lobbied the Greenspan Fed for stronger bank oversight.

Regarding the critique that he tried to stop derivatives reforms in the 1990s pushed by then-Commodities Futures Trading Commision Chair Brooksley Born, a sainted figure on the left, defenders say all Summers opposed was Born’s desire to make derivatives trading, a much smaller industry at the time, essentially an illegal activity.

“I can’t say Larry and I agree on everything in the world because we don’t. But he is a very strong proponent of good regulation and consumer protection,” said Michael Barr, who helped write the Dodd-Frank law while at Treasury and is now a professor at the University of Michigan Law School. “And the kind of view that Larry is some kind of deregulatory monster really ignores that fact.”